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The American middle class is in distress. Here's what that means to the world's largest economy, and the rest of planet earth.

America's middle class: An endangered species?

After losing ground for four decades, middle America increasingly looks doomed. Here's how it happened.

uprooted themselves in search of employment that was meaningful, where effort and merit were rewarded, and where they could be part of something bigger than themselves.

America by no means invented the middle class, nor was it the first to recognize its importance for national strength. In Politics, Aristotle wrote “Those states are likely to be well-administered in which the middle class is large, and stronger if possible than both other classes.” The modern middle class emerged in industrial revolution Britain, when merchants and managers used market power to demand social progress.

But America transformed the middle class like no other nation.

Experts generally trace America’s prosperous middle to 1914, when Henry Ford vowed to pay workers the generous wage of $5 a day, hoping that workers would spend that money on his cars. It worked. Other manufacturers followed, triggering to a virtuous circle of consumer-driven prosperity.

Government spending helped as well. Following World War II, the GI Bill gave the middle class a massive financial jolt. Veterans could suddenly attend college, start businesses and buy homes. Suburbs sprawled as the ultimate symbol of middle class status. In 1947, developer William Levitt would convert 4,000 acres of Long Island potato fields into a vast middle class haven, cranking out 30 new homes daily, each with a tree in the yard.

Meanwhile, a post-war social contract was forged between workers and managers, under which corporations offered decent pay and generous benefits, in return for peace and cooperation from labor. Between 1947 and 1979, income for Americans in the middle quintile (earning between the 40th and 60th percentiles of the population) grew by a robust 2.4 percent annually. That growth freed families to spend, which in turn boosted the economy, making the quarter century following World War II the most broadly affluent in American history.

As the century progressed, many countries sought to replicate America’s success, and the prosperous masses became a critical weapon in American soft power. As Nixon’s famously contentious 1959 kitchen debate with Khrushchev illustrated, kitchen appliances were not just “to make life easier for women,” as Nixon stated. They had become symbols of America’s strength, weapons of Cold War superiority.

In the end, middle class strength arguably played a greater role than intercontinental ballistic missiles in defeating the Soviet threat.

The beginning of the end

The post-war social contract worked miracles until the 1970s. Then the middle class’s fortunes began to change, along with country’s. In 1971, the US recorded its first post-war trade deficit, a relatively modest $1.3 billion. With the exception of one year (1973), the US would never again sell the world more than it bought. The cumulative outflow of wealth from the US trade in goods and services is now nearing $10 trillion.

Those first trade deficits shocked the US public. In fact, in the decades following World War II, the US had explicitly handed subsidy and tariff advantages to foreign trading partners, explains James B. Steele, co-author with Donald L. Bartlett of The Betrayal of the American Dream. "The US was a great believer in free trade after World War II," opening up its borders to foreign products, often unilaterally, Steele explains. "Underlying this was the idea of reciprocity — that when they got back on their feet they would take our products, leading to true free trade. But reciprocity just didn't happen." Japan and Europe kept up trade barriers to US products, and by the early 1970s, this was harming many US manufacturers — long before China embraced capitalism. 

Congress vowed to act. It crafted legislation ostensibly to defend the American worker and demand fairer trade policies. Bills were passed in 1974, 1979 and again in 1984. But by the 1970s, American companies became hungry for profits from outsourcing — high margins that would have been impinged by tougher trade legislation. And so each of bills, explains Steele, was hijacked by corporate lobbyists, eager to further open the door to foreign markets.

By 1993, when Congress adopted the North American Free Trade Agreement (NAFTA), lawmakers dropped the pretense that they were protecting American workers. Rather, despite pitting US jobs directly against low-wage Mexican workers, President Bill Clinton and politicians from both parties claimed that the pact would actually create many thousands of high paying